Carbon Markets and Mitigation Outcomes
Flexible, market-based approaches to reducing air pollution have a strong track record in lowering emissions and offer an important tool to do so cost-effectively. Since its inception, CCAP has worked with stakeholders in the United States and around the world to understand the pros and cons of different market-based approaches and design effective solutions tailored to the target pollutant(s) and policy context. Current work focuses on internationally transferred mitigation outcomes, or ITMOs.
ITMOs: Supporting Higher Ambition through International Cooperation
Under Article 6, the Paris Agreement establishes a new framework for countries to work together in implementing their nationally determined contributions (NDCs) to realize higher ambition in reducing greenhouse gas emissions. While the rules and guidelines are still being defined, this new framework will support different types of collaboration in which countries work together to reduce–and pay for– emissions reductions that involve a transfer of mitigation outcomes across national borders. All such transferred mitigation outcomes are made voluntarily and must meet conditions to ensure environmental integrity and transparency and ensure robust accounting, including to prevent double counting. This last point is particularly important now that all parties are expected to have their own mitigation goals: it is important to ensure that any given emission reduction produced from a mitigation outcome that is transferred supports compliance towards only one NDC.
CCAP has helped advance international thinking on ITMOs through a series of submissions papers and policy briefs, including the following:
- CCAP’s most recent ideas illustrating three alternative types of ITMO designs, including tradeoffs between design flexibility, the fungibility of the instrument, and the needed level of international oversight. This piece also identifies additional strategies to ensure that ITMOs generated from outside the NDC will support environmental integrity and higher ambition.
- CCAP’s widely-read brief, Using Transfers to Enhance Ambition over the NDC Cycles, offers a general approach by which internationally transferred mitigation outcomes can contribute to strengthening ambition through the NDC cycles to meet the goals elaborated in long-term climate strategies. This work particularly focuses on mitigation outcomes that would be transferred from sectors that are not yet part of a developing country’s NDC.
- An earlier submission describes the requirements and characteristics of ITMOs and makes recommendations for the forthcoming guidance and negotiation process, and for countries that might consider generating ITMOs.
In partnership with the Swedish Energy Agency, CCAP is also advancing Virtual Pilots aimed at better understanding different ways this new mechanism can meet the Paris Agreement requirements and support higher ambition.
CCAP’s Prior Projects with Carbon Markets
At its inception, CCAP helped design and pushed for inclusion of the market-based Acid Rain Trading Program as part of the U.S. 1990 Clean Air Act Amendments. A few years later CCAP undertook economic analysis and built a coalition that paved the way to development of a rigorous and flexible regional NOx control program.
In the international arena, CCAP provided advice on the development of the Kyoto Protocol’s Clean Development Mechanism (CDM) and other flexibility mechanisms, and served as lead designer on a team for the European Commission that helped define the European Union Emission Trading System (EU ETS) and the associated monitoring, reporting and verification guidelines that were established to help meet Europe’s compliance obligations under the Protocol. When the need for reform of Europe’s system became clear, we provided critical analysis of reforms needed to strengthen it, similar to the modifications the European Commission would later propose.
CCAP’s sector analyses and support for trading system design in California helped shape the state’s AB32 mitigation goals and multi-sector California Greenhouse Gas Cap-and-Trade Program. More recently, CCAP’s stakeholder engagement aimed at addressing concerns raised by environmental justice organizations helped support the extension of this pioneering program to 2030. CCAP also helped China’s Hubei province prepare for implementation of its ETS.
What CCAP is Doing with Market-Based Instruments
- Providing input into the United Nations Framework Convention on Climate Change (UNFCCC) negotiations to guide ITMO-related discussions.
- Producing analytical products that identify priority issues and consider the role of ITMOs in meeting countries Nationally Determined Contributions (NDCs)
- Convening stakeholders to socialize best practices in the design of instruments that involve transfers of mitigation outcomes.
- Supporting partner institutions in efforts to design effective, Paris-compliant ITMO strategies to help achieve their goals.
CCAP welcomes opportunities to engage with interested parties on these issues.